10s Tell the Story as Yen Breaks

US 10-year yields broke out of the 4-month range as risk aversion gripped markets Tuesday. It was a classic flight to safety in FX as the yen was the top performer while the commodity currencies lagged. Japanese PPI is due next. A new Premium trades in the Aussie has been issued after it had last been opened on March 8 and closed at a gain.

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US 10-year yields closed at the lowest level since November 29 in a break below a clear and critical support line. The range between 2.30% and 2.62% has been pivotal since December with tests (and holds) on both sides. The next level of major support is 2.00% to the 200-dma at 2.03% in a slide that would highlight trouble elsewhere.

Some of the nerves in markets were calmed when the S&P 500 recovered to finish 3 points lower from down 20 points but it was the exception. Gold broke out higher and the yen was heavily bid.

But it's the bond market that has led major moves lately. In March, the failure of the 10-year to break 2.63% was the earliest sign of trouble that later spread elsewhere.

The USD/JPY chart also flashed trouble ahead as it finally broke (and closed) below 110.00 after four failed attempts over the past two weeks.

No single headline was responsible for the change in sentiment, which didn't take hold until a few hours into US trading. One concern was geopolitics as Trump warned China that it would get a better trade deal if it dealt with North Korea. He followed that by saying if China didn't cooperate, the US could deal with North Korea itself. A later report said US and Japanese leaders had discussed notification if/when the US planned to attack. That's a sign that the talk was more than bluster.

In addition, there was more talk about some of the problems we outlined earlier including high debt and tight lending.

We will be watching closely on whether these moves reverse or continue in the day ahead. The Asia-Pacific calendar features Japanese PPI and machine orders at 2350 GMT. PPI is forecast to rise 1.4% y/y and machine orders +2.5% y/y.